Brown-Thill v. Brown

• Decision Date: 08 March 2013
• Docket Number: Case No. 11–1245–CV–W–SOW.
• Citation: 929 F.Supp.2d 887
• Parties: Susan BROWN–THILL, Plaintiff, v. Richard BROWN, Defendant.
• Court: U.S. District Court — Western District of Missouri

929 F.Supp.2d 887

Susan BROWN–THILL, Plaintiff,

v.Richard BROWN, Defendant.

Case No. 11–1245–CV–W–SOW.

United States District Court,

W.D. Missouri,

Western Division.

March 8, 2013.

George A. Barton, Stacy A. Burrows, Law Offices of George A. Barton, P.C., Kansas City, MO, for Plaintiff.

Joel B. Laner, Hazelton & Laner, Kansas City, MO, Phillip J. Loree, Jr., Loree & Loree, Manhasset, NY, for Defendant.

ORDER

SCOTT O. WRIGHT, Senior District Judge.

Before the Court are plaintiff Susan Brown–Thill's Application to Confirm Arbitration Award (Doc. # 1), plaintiff Susan Brown–Thill's Motion for Summary Judgment on Her Application for Confirmation of the December 12, 2011 Arbitration Award and Order (Doc. # 23), defendant Richard Brown's Cross–Motion for Summary Judgment Vacating Arbitration Award (Doc. # 38), defendant Brown's Motion for Leave to File copy of Professor Hanna's Certification (Doc. # 57), and Brown's Motion Requesting Court to Consider When Deciding Pending Summary Judgment Motions Related State Court Litigation Order (Doc. # 68).

This case involves an arbitration award in plaintiff Susan Brown–Thill's (“Brown–Thill”) favor removing defendant Richard Brown (“Brown”) as co-trustee of their father's trust, invalidating his appointment of a successor trustee, and extending the term of employment of Melinda Pomeranke (“Pomeranke”), an employee of one of the limited partnerships operated by the family's trusts. Brown–Thill seeks confirmation of the arbitrator's award, and attorneys' fees pursuant to the parties' arbitration agreement. Brown asks the court to vacate the award of the arbitrator, arguing that the arbitrator exceeded his authority, was biased in favor of Brown–Thill, and committed misconduct. The parties have filed cross-motions for summary judgment.

I. Background¹

Brown and Brown–Thill are siblings and beneficiaries of two trusts established by, and named after, their now deceased parents, Eugene D. Brown (“Eugene”) and Saurine L. Brown (“Saurine”). Since the death of their mother in 2009, Brown and Brown–Thill have served as co-trustees of the Eugene D. Brown Trust (“EDB”). James Cooper (“Cooper”), an attorney practicing in the trusts and estates field, serves as the sole trustee of the Saurine L. Brown Trust.

In order to manage family property, Eugene and Saurine organized two family limited partnerships and one limited liability company in Kansas. The partnerships are the 7219 Metcalf Partnership L.P. (“FLP I”) and the 7219 Metcalf Partnership L.P. II (“FLP II”). FLP I and FLP II are both controlled by a limited liability company, Brown Bear, L.L.C. (“Brown Bear”), as General Partner. Brown Bear, in turn, is controlled by its members, the EDB and SLB trusts. Each trust owns a 50% membership interest in Brown Bear, and any action taken by Brown Bear requires the approval of both trusts. Therefore, trustees Brown, Brown–Thill, and Cooper must all agree before Brown Bear can take any action.

The EDB revocable trust was established by Eugene in 1989, and was restated twice, most recently in 2007, when Eugene executed the “Second Restatement of Revocable Trust Agreement” (“trust agreement”). Eugene was the sole trustee and beneficiary of the trust until his death in 2008. Upon his death, and as the trust agreement provided, a portion of the principal was placed into a marital trust, established for Saurine's benefit, while the remainder was placed in a separate residuary trust for the benefit of Saurine and her descendants. After Saurine died in 2009, Brown and Brown–Thill became co-trustees. As co-trustees, Brown and Brown–Thill are charged with distributing Saurine's trusts into two separate residuary trusts, under which each will become the sole trustee and sole beneficiary. The co-trustees have yet to effectuate their father's plan, and therefore the estate exists as it did before Saurine's death. The residuary trust, but not the marital trust, permitted discretionary distributions to Saurine's descendants only during her lifetime, so the co-trustees cannot currently distribute income or principal to their own descendants. It is unclear if they are income beneficiaries themselves. Brown–Thill does not claim to have any children, but Brown has two minor children who will be qualified to become discretionary income beneficiaries, and to receive discretionary disbursements of principal, from Brown's separate trust. After the separate trusts are created, Brown and Brown–Thill each will have a limited power of appointment to distribute the principal of their own trusts to their descendants, in trust or outright, in whatever proportion they designate by will. However, the trust provides that each child under the age of 30 will become the sole beneficiary of a separate contingent trust, the principal of which be fully paid by age 30. Failing such exercise, each of their living descendants will receive the principal per stirpes.

The other provisions of the trust agreement dispositive here include those related to trustee succession and trustee removal contained in Article V. Trustees may be appointed under four circumstances: (1) by a trustee, when there is only one trustee, (2) by co-trustees acting jointly, where two or more co-trustees are then acting, (3) by a majority vote of the beneficiaries, if no trustee is currently acting and no successor has been appointed, (4) by majority vote of the income beneficiaries, after voting to removing a trustee. Since Brown and Brown–Thill are co-trustees, they must both approve the appointment of a trustee. Any trustee may resign by delivering a written notice of intent to resign in 30 days to the income beneficiaries and to any co-trustee then acting, and thereafter settling his or her account. The trust agreement provides the trustees may be removed by a majority vote of the income beneficiaries, but does not explicitly limit or prevent statutory removal of a co-trustee for cause.

As co-trustees, Brown and Brown–Thill have wide authority to administer the trusts. Each has “full power and authority to do all things necessary and proper to manage, control, invest, and reinvest the assets constituting the trust estate ... in the same manner as if the Trustee were the fee simple owner of the trust estate.” The trust agreement also provides that the administration of the trust and the agreement itself will be governed by the law of the trust situs, and that the trust situs shall be in Florida “unless changed by the trustee” pursuant to the trust agreement. The parties agree that the trust situs has not been changed from Florida.

In March 2010, Brown and Brown–Thill entered into an arbitration agreement to resolve their many disputes over family business out of court. It provides, “All existing and future controversies between the parties ... whether in their individual capacities, their capacities as co-beneficiaries and/or co-trustees of the [EDB trust] and the [SLB trust] ... or in their capacities as co-owners, partners, or members of any business entity, including ... [FLP I, FLP II, and Brown Bear] ... which arise out of or relate to the administration and investment of the trusts, partnerships and assets of the [Brown] estates, the payment of estate taxes ... or the division of assets of such estates ... shall be submitted to binding arbitration.” The Agreement also provides that if “either party fails to follow or abide by the arbitrator's required procedures ... the arbitrator shall be authorized to resolve the issue without the full participation of the non-abiding party and both parties shall be bound by the arbitrator's decision.” One month later, in April 2010, the parties executed an amendment to the Agreement selecting Rich McLeod (“McLeod”) as the arbitrator, giving him “full and complete binding authority to resolve any and all issues submitted to him for arbitration.”

Unfortunately, the arbitration agreement failed to provide a neat solution to the parties' difficulties, and the parties arbitrated several disputes before McLeod. The parties' ongoing disagreements, in and out of arbitration, spurred Brown–Thill to take steps to overcome Brown's resistance and finally, to submit to arbitration a motion to remove him as co-trustee. Before she could arbitrate the issue, however, Brown surprised everyone by executing a written notice of resignation “effective upon the appointment of John L. Rubinstein” (“Rubenstein”) as successor co-trustee. In connection with his resignation, Brown and Rubenstein executed a separate document whereby Brown unilaterally appointed Rubinstein as his successor co-trustee and Rubinstein accepted Brown's appointment. Brown testified that on the following day he hand-delivered his notice of resignation and the document memorializing Rubinstein's appointment and acceptance to Brown–Thill's counsel. Thereafter McLeod adjourned the arbitration.

In her email response, Brown–Thill, through counsel, contested Brown's ability to unilaterally appoint a successor co-trustee, but acknowledged her belief that pursuant to the EDB trust agreement Brown's resignation would be effective upon her acceptance of Rubenstein's appointment. Her testimony at the December 5, 2011 arbitration shows that she and Cooper thereafter met with Rubenstein on several occasions, and that she intended to condition her acceptance of his appointment upon his agreement to take certain actions as co-trustee, including signing the documents required to effectuate a March 14, 2011 arbitration award, and agreeing to extend Pomeranke's employment. Apparently she came close, since she signed various documents that appear to show her acceptance. For example, a document, undated, and titled, “Agreement Regarding Trustee Compensation for the EDB Marital Trust,” signed by Brown–Thill and Rubenstein, includes the recital that “John L. Rubenstein is serving as Co–Trustee of the EDB Marital Trust” (but not the residuary trust), and sets Rubenstein's...